Economists Reveal 3 Social Security Myths Retirees Still Believe

Social Security touches almost every retiree, yet half-heard headlines and outdated rules keep fueling bad decisions. The result is real money left on the table.

Claiming too soon, panicking about bankruptcy, or ignoring taxes can trim hundreds a month from the average retiree's budget.

"While there are long-term funding issues because of demographics, Social Security isn't going bankrupt. As long as people are working and paying payroll taxes, most benefits will still get paid for decades," says Yehuda Tropper, CEO at Beca Life Settlements.

It's time to let go of these common Social Security myths and learn how to avoid wasting your retirement savings.

Myth 1. Social Security is going bankrupt

There are lots of headlines that push the "trust fund depletion" narrative, so people assume their retirement checks will vanish. But Tom Buckingham, an actuary and Chief Growth Officer at Nassau Financial Group, clarifies this isn't the case.

"The program is not designed to go away. Even if trust fund reserves are depleted, ongoing payroll taxes can continue to fund a significant portion of benefits." He notes widespread anxiety, with over half of consumers fearing reductions, but warns against panic moves.

The 2025 Trustees project that the Old Age and Survivors Insurance (OASI) trust fund will be depleted in 2033. After that, about 77% of scheduled benefits could still be covered from ongoing payroll taxes. And that's only if Congress makes no changes to address the shortfall. It's also important to note that lawmakers have multiple options to fix this gap.

Believing the bankruptcy headlines and rushing to grab benefits at 62 can lock in roughly a 30% permanent reduction if your full retirement age is 67. Over just five years, that's $36,000 gone, before cost-of-living adjustments (COLAs). The better approach is to plan your cash flow and claim when it truly fits your health and budget.

Myth 2. You should always claim as soon as possible

People tend to believe this myth because, after all the fearmongering headlines, the idea of getting your benefit while you can feels safe.

"The best time to claim depends on your health, longevity, other income, and needs," Buckingham says. "Waiting until full retirement age or even later often means a much higher monthly benefit," adds Tropper.

Disability attorney Michael Liner agrees, stating, "For others, especially if you plan to work longer or live a long life, waiting can mean thousands more over time."

In reality, after your full retirement age (FRA), each month you wait earns delayed retirement credits (DRCs) worth ⅔ of one percent per month. This works out at around 8% per year until age 70.

For someone born in 1960 or later, the FRA is 67. So, if you wait to claim until you're 70, your check will increase by 24%. Based on this math, if your benefit at FRA is $2,000 and you decide to wait until 70 to claim, your check becomes $2,480, giving you an extra $5,760 per year for life. And remember, every future COLA applies to the larger base.

If you file at 67 instead of 70, you'll lose $34,560 in just six years, plus smaller COLAs thereafter. It's also worth noting that if you're married, it makes sense to have the higher earner delay to boost the future survivor benefit, because survivor checks include any delayed retirement credits.

Myth 3. Your benefits aren't taxed

People believe this myth because the thresholds haven't changed for decades, and the terminology is confusing.

"Many people are surprised to learn their Social Security benefits may be taxed. Depending on other income, up to 85% of benefits can be taxable," says Tropper. Liner adds that a little planning can minimize how much is taxed.

To determine your federal tax rate, the IRS uses combined income, which is your adjusted gross income and tax-exempt interest, plus half of your Social Security benefit. Up to 85% of your Social Security can be taxed if your combined income exceeds $34,000 if you file individually (or $44,000 if you file jointly). You can, however, ask the Social Security Administration to withhold 7%, 10%, 12%, or 22% for federal taxes.

Planning withdrawals and Roth conversions can keep you out of higher brackets and reduce the tax bite on your benefit.

Also, most states do not tax Social Security, but some still do, sometimes with income-based carve-outs or phase-outs. If you split time between states or are thinking of moving, verify your state's current rule.

Bottom line

Misinformation about Social Security is expensive. The trust fund faces a gap, but checks are not vanishing. Claiming age is a powerful lever, and taxes matter more than many retirees expect.

Question assumptions, keep an eye on policy updates, and pressure-test your plan with a professional before you file. Doing so can help you grow wealth and give you peace of mind in your golden years.